Operators are working to establish how they can build on their connectivity services to move up the value chain for M2M and IoT. This focus may be incorrect. Many IoT and M2M services either only need a simple data connection or can bypass traditional telecoms networks altogether. Operators have other strengths on which to build, such as channels to market, billing and support mechanisms, which may be more important than concentrating on connectivity.
Operators have a weaker position in the value chain for M2M and IoT than for traditional telecoms services
An operator’s position in providing a service can be examined by looking at the elements in the value chain of a service, and by assessing how strong the operator is in each of these elements.1 Figure 1 compares operators’ strengths in the value chain for traditional voice services with their strengths for two types of M2M service.
- Voice services: Operators are well-placed to provide the service and capture most of the value. We forecast that telecoms operators will provide 76% of voice minutes on smartphones in Western Europe in 2018, and earn more than 95% of voice revenue, despite the threat of over-the-top (OTT) services (for more information see our OTT communication services worldwide: forecasts 2013–2018).
- M2M services: Operators are in a weaker position. Much, if not most, of the value of an M2M service is in the provision of the application and the device. Most operators can, at best, resell a device and application provided by a third party. For some services, such as smart metering and smart lighting, traditional operators may be competing against new networks that operate in licence-exempt spectrum.
The risks are not purely theoretical. Some of the larger vehicle-tracking companies, such as Ctrack, require little more than a cellular data connection from an operator. Occasionally, this will be managed connectivity, supported by, for example, Jasper Technologies, Ericsson’s Device Connection Platform (DCP) or Vodafone’s Global Data Service Platform (GDSP), but overall connectivity will be only a small share of the total value of the service. Other services do not even require a connection provided by a traditional operator. For example, Telensa is quietly expanding its smart lighting business in the UK and USA with no reliance on telecoms operators.2
Figure 1: Strength of operators in the value chain for voice and M2M services [Source: Analysys Mason, 2014]
a Vehicle tracking, for example.
b Smart parking, for example.
c Low-power, wide-area networks, such as SIGFOX, Semtech, LTE-MTC and Neul.
Operators’ stores and established customer bases give them significant strengths in M2M and IoT
This is not to say that operators have a weak position in IoT or M2M. The strengths that they have are extremely hard to replicate – few other organisations have thousands of stores or an existing customer base of millions and the mechanisms to bill and support them. Some operators are already doing this; Deutsche Telekom and T-Systems are providing first and second-line support for MAN’s TeleMatics service. We also know from previous research that enterprises prefer to buy M2M and IoT services from existing suppliers. However, the strengths that operators have in M2M and IoT may not be where they have traditionally seen their advantages (that is, in the ownership of network or spectrum assets).
Operators face challenges in building on the strengths of sales and support – for example, in training the sales and support teams to deal with new and very different products from traditional telecoms services. However, these are challenges that operators face in entering any new market, and ones that they need to overcome to generate more than connectivity revenue from M2M and IoT services.
Furthermore, in each of the areas where their position is weak or uncertain, operators can develop or acquire new solutions. For example, they can deploy low-power, wide-area (LPWA) networks or acquire or partner with companies with vertical market applications and expertise.
1 This is based around concepts developed by Bruce Henderson, founder of the Boston Consulting Group, and Michael Porter, Harvard Business School professor.
2 Telensa is using ultra-narrowband technology, licensed from Plextek, its parent company, and operates in licence-exempt 868MHz spectrum.
Source: Analysys Mason
